<b><i>Legal Tech</b></i> Could Federal Courts' Inherent Powers Upend the New Amendments to Rule 37(e)?

Earlier this year, however, one federal court found that it could issue relief for spoliation under its inherent powers even if the new version of Rule 37(e) was inapplicable. In CAT3, LLC v. Black Lineage, Inc., No. 14-cv-5511, 2016 U.S. Dist. LEXIS 3618 (S.D.N.Y. Jan. 12, 2016), the plaintiffs were accused of having altered the domain names of certain e-mail addresses before producing them to the defendants.. The original e-mails had been deleted and replaced with a second altered version of the e-mails that contained different domain names, though the original e-mails were able to be recovered. Id. at 6-9. The defendants offered testimony from an expert that the deletion of the original e-mails and substitution with different domain names could not have happened accidentally or from a migration to a new e-mail system. Id. at 11-12, 25. As such, the court found that the plaintiffs' conduct was intentional and met the requirements of the new version of Rule 37(e).

But, perhaps more relevant to the broader context of the impact of new Rule 37(e), in dicta, the court found that “[i]f ' Rule 37(e) were construed not to apply to the facts here, I could nevertheless exercise inherent authority to remedy spoliation under the circumstances present.” Id. at 20. The Advisory Committee Notes to Rule 37 state that the new rule “forecloses reliance on inherent authority or state law to determine when certain measures should be used,” purportedly putting this issue to rest. Fed. R. Civ. P. 37(e), Advisory Committee Note to 2015 Amendments. But the court in CAT3 rejected the Advisory Committee Note, finding that “'it has long been understood that 'certain implied powers must necessarily result to our courts of justice from the nature of their institution,'” and that “'[t]hese powers are 'governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.'” Id. at 20-21 (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 43). It further found that “[o]ne such inherent power is the authority to impose sanctions for the bad faith spoliation of evidence.” Id. The court did note, however, that a clear and convincing standard would apply when the court relies upon its inherent authority in lieu of authority grounded in statute or rule. Id. at 23-24.

If federal courts can use their inherent authority in determining the appropriate sanction for spoliation, then the motivations behind the amendments to Rule 37(e) may be at least somewhat underscored. The amendments to Rule 37(e) were a complete overhaul, designed to provide parties comfort that they wouldn't be hit with severe sanctions if they just made a simple mistake. Rather, they must have an “intent to deprive.” The court's decision in CAT3, however, indicates that a showing of bad faith conduct is necessary to invoke a court's inherent powers. Id. at 30. In many instances, bad faith and intent to deprive could be one in the same, but not always. Bad faith can be found from gross negligence, and, therefore, using its inherent powers a federal court may be able to sanction a party for spoliation after finding only gross negligence.

Conclusion

The court in CAT3 found that the plaintiffs' conduct met the requirements of amended Rule 37, and, thus, it didn't need to use its inherent powers to issue more severe sanctions. Only time will tell whether other courts will use their inherent powers to issue more severe spoliation sanctions when intent to deprive is not found. At least one court has recognized, albeit in a footnote, that Rule 37(e) only applies to ESI, and not tangible documents or evidence, but “when confronting a spoliation claim in an ESI case, a court must first look to newly amended Rule 37(e) and disregard prior spoliation case law based on 'inherent authority' which conflicts with the standards established in Rule 37(e).” Living Color Enterprises, Inc. v. New Era Aquaculture, Ltd., No. 14-cv-62216, 2016 U.S. Dist. LEXIS 39113, at 12 n.2 (S.D. Fla. March 22, 2016). Thus, the drafters' goal of championing a uniform standard for spoliation sanctions may not be entirely settled. In channeling ESPN college football analyst Lee Corso, at least one federal court has implicitly stated: “Not so fast my friends.”

Robert Tucker is a partner with BakerHostetler in Columbus, OH. His practice focuses on class action defense and commercial litigation and is a member of the E-Discovery and Advocacy Management team. He can be reached at [email protected].